Supply-chain problems, rising interest rates and inflationary pressures are making offshore wind projects far more expensive to build than originally projected. As a result, some developers are looking to renegotiate financing agreements that were already high as offshore wind is the most expensive generating technology being considered anywhere and since it is intermittent, it is also unreliable.
Global market dynamics have also compounded the problems. The United States is building its first wave of offshore wind farms at the same time European countries are trying to accelerate their own projects to secure renewable electricity supplies, which has strained supply chains, as well as the availability of specialized installation vessels needed to transport and hoist the huge turbines.
Further, lawmakers at local, state and federal levels have called for a temporary pause in ocean floor preparation work for offshore wind farms in New Jersey and New York after the seventh whale washed ashore in a little over a month. The fatalities prompted an environmental group and some citizen groups to ask President Biden for a federal investigation into the deaths.
U.S. Offshore Wind Projects
Avangrid, a subsidiary of Spanish power company Iberdrola SA, is developing a 1.2-gigawatt project called Commonwealth Wind off the coast of Massachusetts. The large wind farm will need three power cables from the wind farm to the beach which makes residents worry about their impact on the estuarine environment. In December, the company asked the Massachusetts Department of Public Utilities to terminate its review of contracts that the company negotiated with utilities serving the state. The company intends to scrap the contracts and rebid the project next year to account for higher costs that will push its completion date out to 2028.
Mayflower Wind Energy LLC, a joint venture between Shell New Energies US LLC and Ocean Winds, is developing another Massachusetts project whose contracts have been similarly affected. The company plans to produce third-party analysis showing the challenges of financing the project. Rhode Island utility regulators are considering suspending Mayflower Wind’s application for transmission cables that would run up the Sakonnet River to the former site of the Brayton Point Power Station in Somerset after the developer raised questions about the financial viability of the first phases of the $5 billion offshore wind project it proposed off Massachusetts. President Biden visited this site in July 2022. The state Energy Facility Siting Board ordered the company to demonstrate why the proceedings should not be stayed until the questions surrounding the financing of the first 1,200-megawatt wind project are resolved.
Ørsted, another developer, indicated that its anticipated return on U.S. projects, including Ocean Wind 1 off New Jersey, is “not where we want it to be.” New Jersey utility company Public Service Enterprise Group Inc., which has a 25 percent interest in Ocean Winds, told analysts that it was reviewing its options and project costs before making a final investment decision.
Dominion Energy Inc., a Richmond, Virginia-based utility company, is building the only offshore-wind installation vessel under construction in the United States. The vessel is expected in 2024 to service two projects under development by Ørsted and New England utility company Eversource Energy, and will then move to service a 2.6-gigawatt project Dominion is building off the coast of Virginia. The vessel is more than 60 percent complete. The company’s $9.8 billion offshore wind farm remains on schedule and on budget, largely because the company signed its supply contracts before the supply constraints emerged.
Biden Administration Goals
The Biden administration has set a target for the United States to construct 30 gigawatts of traditional offshore wind facilities (with structures attached to the ocean floor) in federal waters by 2030, and an additional 15 gigawatts of floating industrial offshore wind by 2035. To hit those targets, the Biden administration is pushing to lease areas in federal waters in the Gulf of Mexico and Gulf of Maine and off the coasts of New England, the Mid-Atlantic States, North Carolina, South Carolina, California, and Oregon. The Inflation Reduction Act contains generous tax credits for offshore wind developers and manufacturers, as well as support for transmission planning that developers are studying to help stabilize their project costs and work toward Biden’s goals.
The Biden administration wants to begin developing offshore wind along the West Coast, an effort seen as key to achieving Biden’s 2030 target and other of his climate goals. But the West Coast projects have come with regulatory complexities, deep-water technical risks and port space constraints that has made developers hesitant to bet big on the region as costs increase. The first-ever sale of California offshore wind rights in December fetched $757 million, compared with a $4.37 billion in an Atlantic coast auction the previous February.
Offshore Wind Costs
According to the Energy Information Administration, before generous federal tax credits and other federal and state support, the levelized cost of electricity from new offshore wind is $136.51 per megawatt hour. Even if new gas pipelines had to be constructed, natural gas could provide energy in place of Biden’s offshore wind turbines for a fraction of that cost. In addition, jobs from natural gas production and use do not have to be subsidized by taxpayers because those companies do not rely on government support for continued operation. Rather, they make profits and pay taxes instead of consuming them. If natural gas is rejected because it produces greenhouse gases at the point of generation, either solar at $36.49 per megawatt hour before tax credits or onshore wind at $40.23 per megawatt hour would make more sense financially for taxpayers and ratepayers than offshore wind.
The heavy reliance on offshore wind facilities for electricity is one reason why the United Kingdom has the highest electric power prices in the world. Unlike markets, where price hikes almost always ensure supplies increase to meet demand and thus ultimately reduce prices, wind power is not dependent on incentives but on nature. Despite high prices, the U.K. and other European nations suffered energy shortages when winds over the North Sea went calm during the summer and left turbines dead in the water for days or weeks at a time.
According to Save LBI, a group that opposes offshore wind farms close to shore, wind turbines off New Jersey would harm endangered North Atlantic right whales. Ocean surveying, installation of wind turbines and the noise created by the operations create unacceptable levels of noise for the whales. According to the National Oceanic and Atmospheric Administration, the population of North Atlantic right whales has declined to fewer than 350. Whales are vulnerable to ocean noise pollution, vessel strikes, shifts in prey locations, and habitat degradation.
The offshore wind fiasco is another reminder that the desires of politicians cannot change the underlying physics and economics of offshore wind energy or any other kind of energy, for that matter. Despite President Biden having lofty goals for offshore wind, soaring costs are making developers renegotiate the terms of financial agreements and consumers will end up paying higher costs for electricity as government policies are banning other sources. Biden’s green energy and climate goals are and will continue to be a nightmare for consumers, who will suffer with much higher energy prices as offshore wind is the most expensive generating technology being considered. And whales are washing ashore in areas where offshore wind activity is occurring as they are vulnerable to ocean noise pollution, vessel strikes, shifts in prey locations, and habitat degradation. Wind is unreliable as it is dependent on nature. The UK and Germany found low wind resources deadened their wind turbines and resulted in energy shortages during the summer. Putting all one’s energy eggs in a single basket with obvious holes in it is not a viable plan for the nation’s energy future.